In the matter of Mr. Pramod Jain

8/12/2019 In the matter of Mr. Pramod Jain

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1. Appellants are aggrieved by order dated April 13, 2012, whereby

Whole Time Member of the Securities and Exchange Board of India

(SEBI for short) has rejected the application filed by appellants on

October 11, 2011 seeking permission to withdraw public offer made by

appellants on November 12, 2009 under SEBI (Substantial Acquisition

of Shares and Takeovers) Regulations, 1997 (SAST Regulations, 1997

for short). By public offer dated November 12, 2009, appellants

intended to acquire 25% of issued equity share capital from the equity

shareholders of Golden Tobacco Ltd. (GTL for short).

2. Appellants wanted to withdraw the public offer basically on two

grounds. Firstly, inordinate delay of more than two years on part of

SEBI in approving the draft of the letter of offer submitted on November

26, 2009 has frustrated the public offer, because, under regulation 18(2)

SAST Regulations, 1997, SEBI was required to approve or suggest

changes within 21 days from the date of receiving draft of the letter of

offer whereas SEBI took more than two years to approve the draft letter

of offer. Secondly, during the period, of two years, promoters and

management of GTL have played havoc with the assets of the company

by encumbering the most valuable Vile-Parle property of GTL in gross

violation of SAST Regulations, 1997 and have also siphoned of funds of

GTL thereby rendering GTL a shell company without any substance and

made it a sick company. In these circumstances, it is contended that the

public offer has become frustrated and impossible of performance and

therefore under regulation 27(1)(d) of SAST Regulations, 1997,

appellants must be permitted to withdraw from public offer.Brought to you by http://StockViz.biz


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being shortlisted as the best bidder, bid of Appellant

No.1 obviously stood rejected.

(d) On November 12, 2009, appellants in terms of

regulations 10 and 12 of SAST Regulations, 1997

made voluntary public announcement for acquisition

of 44,02,201 fully paid-up equity shares of`10 each

representing 25% of the issued equity share capital

from the equity shareholders of GTL at a price of

`101/- per share (offer price) payable in cash (open

offer). At that time, market price of GTL share was

`109/- per share, networth of GTL as on 31stMarch,

2009 was `42.44 crores, net current assets were

`134.4 crores and gross sales were`173.68 crores.

(e) Object of acquiring 25% shares of GTL as stated in

the public offer was to obtain substantial stake/voting

rights in GTL. The public offer bid was an effort to

carry out hostile takeover of GTL and if the bid was

concluded, it would have resulted in the promoters of

GTL being ousted from control and management of

GTL.

(f) On November 26, 2009 appellants, in accordance

with regulation 18(1) of SAST Regulations of 1997,

submitted draft of the letter of offer to SEBI for

approval. Regulation 18(2) provides that the letter of

offer shall not be dispatched before expiry of 21 daysBrought to you by http://StockViz.biz


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from the date of its submission to SEBI under

regulation 18(1) and if within 21 days from the date

of submission of the draft letter of offer, SEBI

specifies changes, if any, in the letter of offer, then

the acquirer shall carry out such changes before the

letter of offer is dispatched to shareholders.

(g) On same day i.e., on November 26, 2009 itself

appellants had lodged a complaint with SEBI

wherein it was stated that the promoters of GTL have

been making factually incorrect and misleading

statements after public announcement made by

appellants.

(h) On December 7, 2009, appellants received a letter

from SEBI wherein certain clarifications in relation

to offer price and background of appellants, financial

arrangements, etc. were sought. By their letter dated

December 23, 2009, appellants furnished requisite

clarifications to SEBI and requested SEBI to issue

final observations at the earliest. However, SEBI

failed to issue final observations and in the meantime

date for commencement of open offer/ closing offer

as set out in the draft letter of offer lapsed on

December 30, 2009 and January 18, 2010

respectively.

Brought to you by http://StockViz.biz


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(i) While draft of the letter of offer was pending

approval before SEBI, GTL on November 26, 2009

entered into a Memorandum of Understanding

(MOU for short) with Sheth Developers and

Suraksha Realty Ltd. for joint redevelopment of Vile

Parle property without approval of the general body

of shareholders which was in violation of regulation

23(1) of SAST Regulations, 1997. Consideration

receivable by GTL under the said MOU was`542.70

crores plus 10% of the built-up area including

common areas and facilities to be constructed on the

said Vile Parle property as per the terms set out in the

MOU.

j) By notice dated December 21, 2009, Extra Ordinary

General Meeting (EGM) of GTL was convened on

January 18, 2010 to consider joint development of

Vile-Parle property. However, even before EGM

approval could be obtained, the promoters of GTL in

breach of regulation 23(1) of SAST Regulations

entered into an MOU with Sheth Developers.

Although it is claimed that in the EGM held on

January 18, 2010 it is resolved to authorize two

executives of GTL to undertake necessary steps for

development of Vile-Parle, Marol (Andheri),

Hyderabad and Guntur properties of GTL, it is aBrought to you by http://StockViz.biz


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matter of record that on date when MOU was entered

into there was no approval of the general body of

shareholders.

(k) In January 2010, appellants and some others filed

Company Petition No.3 of 2010 before the Company

Law Board under Sections 397 and 398 of the

Companies Act alleging oppression and

mismanagement of GTL by its promoters,

particularly Dalmia Group. In the Company Petition,

appellants had also challenged decision of GTL in

encumbering the Vile-Parle property by entering into

MOU with Sheth Developers without disclosing all

material facts to the shareholders and without the

approval of the general body of shareholders of GTL.

It was also alleged in the Company Petition that the

promoters of GTL have been mismanaging the

affairs of the company and have siphoned away huge

amounts from the company, as a result whereof there

has been deep decline in the performance and

profitability of the company. In the said Company

Petition, appellants had also sought an order

restraining GTL from holding the EGM scheduled to

be held on January 18, 2010.

(l) Company Law Board, however, heard the matter and

passed an order on January 19, 2010. In the saidBrought to you by http://StockViz.biz


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GTL, SEBI went on forwarding complaints received

by it from time to time against the appellants and

sought comments of the appellants on the said

complaints. First of such complaint was forwarded

by SEBI on January 19, 2010, for which suitable

reply was filed by appellants on February 3, 2010

(see Page 723 & 726). Similarly other complaints

forwarded by SEBI were suitably replied by

appellants from time to time. Each of the complaints

filed against appellants were frivolous and SEBI

instead of rejecting those complaints as devoid of

any merit, went on forwarding the complaints for

comments of appellants, thereby unduly delaying

approval of the draft of the letter of offer.

(o) On February 8, 2010, Company Petition No.3 of

2010 was withdrawn by appellants. In the order

passed by Company Law Board it was merely

recorded that the parties have amicably settled the

matter without any further claims against each other.

p) Annual accounts of GTL published for the year

2010-2011 as on March 31, 2010 revealed that out of

the proceeds received from MOU and mortgage of

Marol property, approximately ` 175 crores have

been advanced by GTL to its subsidiary namely

Golden Realty and Infrastructure Limited duringBrought to you by http://StockViz.biz


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Financial Year 2009-2010 and 2010-2011 (see page

179 of Appeal paper book). Golden Realty was a

company as per Directors report, with no operational

income and was in the process of conducting a

feasibility study to provide manufacturing facilities

to the parent/holding company and was exploring the

real estate business. Between 2009 & 2011, out of

the amount advance by GTL to Golden Realty, a sum

of`172.55 crores have been transferred by Golden

Realty to undisclosed third parties under the guise of

acquiring development rights for construction of

property (see page 180 of the Appeal paper book).

q) From June, 2010 several letters and reminders were

sent by Merchant Banker of appellants to SEBI

requesting them to approve draft of the letter of offer

submitted by appellants. Last of such reminder was

sent on August 26, 2011.

r) On September 18, 2010 Annual General Meeting of

GTL was held to pass an enabling resolution to enter

into agreements with Sheth Developers for joint

development or sale of the property at Vile-Parle.

s) On February 12, 2011 notice of postal ballot was sent

to shareholders seeking their consent to enter into

agreements with Sheth Developers for joint



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third party interest pursuant to the resolution dated

January 18, 2010. On April 26, 2011 City Civil Court

at Mumbai granted ad-interim relief in favour of

appellants after considering plea of appellants that

the proceeding before the Company Law Board was

withdrawn on an assurance by the promoters of GTL

that sale of Vile Parle property would not take place

without a public auction, but in breach of that

assurance, promoters of GTL were trying to dispose

of the Vile Parle property without public auction.

v) On August 2, 2011, Appellant No. 3 made an

application to SEBI seeking permission to withdraw

open offer on various grounds set out therein. By its

letter dated August 16, 2011, SEBI called upon the

appellants to address all communication through the

merchant banker.

w) On September 6, 2011 merchant banker of the

appellants addressed a letter informing SEBI that the

promoters of GTL were acting in a manner contrary

to the interest of the acquirer as well as shareholders

and requested SEBI to initiate investigation in the

matter. In that letter personal hearing was sought to

enable appellants to make their submissions in

support of the allegations made by the appellants.



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listing agreement under section 23E of the Securities

Contracts (Regulation) Act, 1956 and imposed

penalty of ` 60 lacs for violation of PFUTP

Regulations on account of failure to provide details

of shares pledged or encumbered by promoters and

playing fraud on investor by concealing information

relating to encumbrance of shares.

(bb) On February 14, 2014 SEBI passed an order levying

penalty of`1 crore against the promotes of GTL inter

alia for acting in violation of regulation 23 which

could frustrate the open offer made by appellants.

4. We have extensively heard Mr. Gaurav Joshi, learned Senior

Advocate appearing on behalf of appellants and Mr. Shiraz Rustomjee,

learned Senior Advocate appearing on behalf of respondent.

5. Case of appellants, in nutshell is that, their request for withdrawal

from public offer deserved to be allowed basically on two grounds.

Firstly, it is contended that delay of more than two years in approving

the draft letter of offer has frustrated the public offer, because, when

regulation 18(2) provides for 21 days to approve the draft of the letter of

offer, SEBI could not have taken more than two years to approve the

draft letter of offer and during the period of two years, GTL has become

a sick company. Secondly, during the pendency of public offer,

promoters/management of GTL have encumbered the most valuable



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asset (Vile-Parle property) in gross violation of regulation 23 and have

also siphoned of funds of GTL thereby frustrating the object with which

public offer was made and making it impossible for appellants to acquire

shares of virtually a dead company.

6. In support of first contention, it is contended that regulation 18 of

SAST Regulations, 1997 specifically prescribes time limit of 14 days for

filing draft of the letter of offer and 21 days for approving the draft letter

of offer. Object of prescribing time limit is to ensure that the public offer

does not become frustrated on account of delay in approving the draft

letter of offer. In the present case, though draft letter of offer was filed

by appellants within the stipulated time, SEBI has failed to approve the

draft letter of offer within the stipulated time. For the violations

committed by SEBI appellants could not be penalized especially when

the public offer has become frustrated on account of delay in approving

the draft letter of offer.

7. It is further contended that notwithstanding the decisions of Apex

Court in case of SEBI vs. Akshya Infrastructure Pvt. Ltd. (Civil Appeal

No. 6041 of 2013, decided on April 25, 2014) and in case of Nirma

Industries Ltd. vs. SEBI reported in (2013) 8 SCC 20, regulation

27(1)(d) ought not to be read ejusdem generis with regulation 27(1)(b)

and 27(1)(c). Submission is that regulation 27(1)(d) would cover all

situations which SAST Regulations, 1997 may not have been in a

position to envisage and as such regulation 27(1)(d) ought to be

interpreted as broadly as possible. It is contended that giving narrowerBrought to you by http://StockViz.biz


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interpretation to regulation 27(1)(d) as held by Apex Court would

amount to limiting the powers of SEBI and preventing them from

performing their duties and responsibilities.

8. Without prejudice to the above, it is contended that the appellants

case falls squarely within regulation 27(1)(d) as interpreted by the Apex

Court in case of Nirma Industries Ltd. as well as Akshya Infrastructure

Pvt. Ltd., because, the expression such circumstances in regulation

27(1)(d) would includes circumstances where the open offer stands

frustrated interalia on account of frustrating actions taken by the

promoters/shareholders of the GTL in violation of regulation 23.

Submission is that assuming without admitting that the power of SEBI

under regulation 27 (1)(d) has to be read ejusdem generis with

regulation 27(1)(b)&(c), even then the test of virtual impossibility has to

be read to include the test of frustration. In other words, it is contended

that the test of impossibility is not confined to physical impossibility,

but would cover situations where it becomes impracticable or useless to

make the open offer having regard to the objects and purpose of the

parties by intrusions or unexpected events or change in circumstances,

which were not contemplated and which strike at the very root of the

matter. In support of above contentions, reliance is placed on Takeover

Code of Hong Kong, United Kingdom, Thailand, Singapore and

Australia wherein provisions pari materia with regulation 23 of SAST

Regulations, 1997 contain the principle of prevention of frustrating

action. In the present case, it is contended that open offer has become

frustrated/impossible of performance on account of GTL becoming aBrought to you by http://StockViz.biz


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defunct company due to actions taken by the promoters/shareholders in

encumbering the assets of GTL and siphoning of funds of GTL.

9. We see no merit in the above contentions. No doubt, that above

arguments at first blush appear to be attractive but on a deeper

consideration in our opinion said arguments do not merit acceptance. It

is true that regulation 18(2) of SAST Regulations, 1997 requires SEBI to

offer its comments within 21 days from the date of submission of draft

letter of offer. However, second proviso to regulation 18(2) provides

that if the disclosures in the draft letter of offer are inadequate or the

Board has received any complaint or has initiated any enquiry or

investigation in respect of the public offer, then SEBI may call for

revised letter of offer with or without rescheduling the date of opening

or closing of the offer and may offer its comments to the revised letter of

offer within seven working days of filing of such revised letter of offer.

10. In the present case, facts on record reveal that apart from

forwarding complaints received against appellants from time to time and

seeking their comments on such complaints, it does not appear that

SEBI had actually initiated any enquiry or investigation relating public

offer. Assuming that forwarding complaints itself amounted to carrying

out investigation, SEBI cannot continue with such investigation for

years together. Therefore, when the provisions contained in the SAST

Regulations, 1997 require SEBI to act swiftly in offering its comments

on the draft of the letter of offer, in the facts of present case, SEBI was



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wholly unjustified in taking more than two years for offering its

comments on the draft of the letter of offer submitted by appellants.

11. However, in case of Nirma Industries Ltd. (supra) as also in case

of Akshya Infrastructure Pvt. Ltd. (supra), Apex Court while criticizing

the conduct of SEBI for the delay in offering its comments on the draft

letter of offer has held that the delay in offering its comments by SEBI

on the letter containing voluntary open offer, though undesirable, is not

fatal to the decision ultimately taken by SEBI. In case of Akshya

Infrastructure Pvt. Ltd., (supra) delay in offering comments on draft of

the letter of offer was 13 months, whereas, in the present case, delay in

offering comments is more than 24 months. Therefore, irrespective of

the fact that the delay in the present case is enormous, in view of the

aforesaid decisions of Apex Court argument of appellants that delay on

part of SEBI in approving the draft letter of offer has made mockery of

provisions contained in SAST Regulations, 1997 cannot be accepted.

12. Being aware of the above legal position, Mr. Joshi, learned Senior

Advocate appearing on behalf of appellants fairly stated that even

though arguments based on delay are untenable in view of aforesaid

decisions of Apex Court, he is not giving up the arguments based on

delay, because, appellants would like to reagitate the issue with a view

to persuade the Apex Court to take fresh look on the issue of delay

defeating the provisions contained in SAST Regulations, 1997.

Accordingly, first contention of appellants that the delay of more than

two years on part of SEBI in offering its comments on the draft letter ofBrought to you by http://StockViz.biz


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offer and also the argument that regulation 27(1)(d) ought not to be read

ejusdem generis with regulation 27(1)(b) and 27(1)(c) is rejected as it

runs counter to the dictum laid down by the Apex Court in case of

Nirma Industries (supra) and Akshya Infrastructure Pvt. Ltd. (supra).

13. Second argument of appellants is that assuming regulation

27(1)(d) has to be read ejusdem generis with regulation 27(1)(b)/

27(1)(c) of SAST Regulations, 1997, in the facts of present case, public

offer made by appellants became frustrated and became impossible of

performance, because, during the period of two years taken by SEBI to

offer its comments on the draft letter of offer, the

promoters/management of GTL have encumbered the most valuable

Vile Parle property of GTL in gross violation of regulation 23 of SAST

Regulations, 1997 and have also siphoned of funds of GTL, thereby

making GTL a shell company and a sick company and hence appellants

are entitled to withdraw from public offer under regulation 27(1)(d) of

SAST Regulations, 1997.

14. We see no merit in the above contentions. Admittedly, GTL had

decided to develop the Vile-Parle property even before public offer was

made by appellants on November 12, 2009. In fact Appellant No. 1 had

made an offer to GTL on September 29, 2008 for joint development of

Vile-Parle property by offering`150 crores as non refundable amount

and had suggested profit sharing in the joint venture at a ratio 50:50.

However, GTL rejected the offer made by appellants and on

recommendation of Ernst & Young shortlisted Sheth Developers as bestBrought to you by http://StockViz.biz


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bidder for joint development of Vile-Parle property. Thereupon

appellants decided to make hostile public offer on November 12, 2009

with a view to frustrate decision of GTL to develop the Vile-Parle

property jointly with Sheth Developers. Although object of the proposal

to acquire 25% shares of GTL at`101/- per share as against the market

price of` 109/- per share, as stated in the public offer was to obtain

substantial stake/voting rights of GTL, it is not in dispute that appellants

were basically interested in developing the Vile-Parle property. Thus, it

is evident that appellants being frustrated in their endeavour to develop

the Vile-Parle property, had resorted to the mechanism of public offer

with a view to frustrate the decision of GTL in jointly developing the

Vile-Parle property with Sheth Developers. Therefore, appellants having

made public offer out of frustration on account of not being able to

develop the Vile-Parle property, are not justified in alleging that

entrusting the development of Vile-Parle property to Sheth Developers

has frustrated the public offer made by appellants.

15. Admittedly, after making public offer, appellants had filed

Company Petition No. 3 of 2010, wherein specific grievance was made

to the effect that GTL had entered into MOU with Sheth Developers

without disclosing all material facts to the shareholders and without the

approval of shareholders which was in gross violation of regulation 23

of SAST Regulations, 1997. It was also alleged in the Company Petition

that the promoters of GTL have been mismanaging the affairs of the

company and have siphoned of huge amounts from the company, as a

result whereof, there has been deep decline in the performance andBrought to you by http://StockViz.biz


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profitability of the company. Appellants had also sought an order

restraining GTL from holding EGM which was scheduled to be held on

January 18, 2010.

16. Company Law Board in its order dated January 19, 2010,

recorded statement made by counsel for GTL that in the EGM held on

January 18, 2010 requisite resolutions have been passed in relation to

development of Vile-Parle property and in implementation of the said

resolution third party rights have been created. By that order Company

Law Board directed that during the pendency of Company Petition No. 3

of 2010 GTL shall not act upon resolution dated January 18, 2010 any

further. From aforesaid order passed by Company Law Board it is clear

that in view of resolution passed in the EGM held on January 18, 2010,

violation of regulation 23 committed by GTL in relation to development

of Vile-Parle property stood rectified. Dispute, if any in relation to

passing of resolution on January 18, 2010 was to be considered at the

hearing of Company Petition No. 3 of 2010.

17. However, on February 8, 2010, appellants withdrew Company

Petition No.3 of 2010 by merely recording that the parties have amiably

settled the matter without any further claims against each other. Having

settled the dispute relating to development of Vile-Parle property with

the promoters/management of GTL on the basis of undisclosed reasons

and having withdrawn Company Petition No. 3 of 2010 unconditionally,

it is not open to appellants to allege that their public offer is frustrated



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on account of GTL entering into MOU with Sheth Developers for

development of Vile-Parle property.

18. Similarly, having settled the dispute relating to siphoning of funds

by GTL during 2009-2010 which plea was specifically raised in

Company Petition No. 3 of 2010, appellants are not justified in agitating

the very same issue before SEBI on ground that GTL has siphoned of its

funds during the year 2009-2010 and 2010-2011. In other words, since

the plea of siphoning of funds by GTL during the year 2009-2010 and

prior thereto having been specifically raised in Company Petition No. 3

of 2010 and that issue having been settled by appellants with the

promoters/ management of GTL for undisclosed reasons, the appellants

are not justified in reagitating the very same issue before SEBI in

relation to siphoning of funds either during 2009-2010 or during 2010-

2011.

19. No doubt that during the period 2010-2011 there were several

complaints filed by appellants against promoter/management of GTL

and there were several complaints filed against appellants in relation to

their public offer. Admittedly, SEBI has not considered the complaints

filed by appellants, but unduly delayed in offering its comments on the

draft letter of offer by forwarding the complaints received against the

appellants and seeking their comments on the complaints received from

time to time. SEBI was not justified on one hand declining to consider

the complaints filed by appellants against promoters of GTL and on

other hand indefinitely withholding their comments on the draft letter ofBrought to you by http://StockViz.biz


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offer on ground that complaints received against appellants in relation to

public offer made by appellants are being investigated.

20. However, as held by Apex Court in case of Nirma Industries Ltd.

(supra) and Akshya Infrastructure Pvt. Ltd. (supra) failure on part of

SEBI to offer its comments on the draft letter of offer within the

stipulated time does not entitle appellants to withdraw public offer.

Moreover grounds on basis of which appellants sought withdrawal of

public offer were admittedly grounds raised and settled in Company

Petition No. 3 of 2010. Therefore, fact that siphoning of funds during

2010-2011 was not the subject matter of Company Petition No. 3 of

2010 would make no difference, because, if the grievance relating to

siphoning of funds during the year 2009-2010 and prior thereto raised in

Company Petition No. 3 of 2010 has been settled for undisclosed

reasons, then, appellants are not justified in agitating that issue only in

relation year 2010-2011. In other words if grievance of appellants

relating siphoning of funds during 2009-2010 and prior thereto do not

survive in view of settlement based on undisclosed reasons, then for the

same reasons, the grievance relating to siphoning of funds during 2010-

2011 would not survive.

21. It is relevant to note that appellants, subsequent to withdrawal of

Company Petition No. 3 of 2010 in February 2010, have filed S. C. Suit

No. 817 of 2011 in April 2011 before the City Civil Court at Mumbai,

alleging for the first time that the Company Petition No. 3 of 2010 was

withdrawn on account of oral assurance given by promoters of GTL thatBrought to you by http://StockViz.biz


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Vile-Parle property would be developed only after holding public

auction and that the promoters of GTL have committed breach of that

oral assurance.

22. Admittedly, City Civil Court at Mumbai has granted ad- interim

relief in favour of appellants on April 26, 2011 and that ad- interim

order continues to be in operation till date. Therefore, irrespective of the

fact that SEBI was not justified in taking more than two years for

approving the draft letter of offer, in the facts of present case, grievance

of appellants that the public offer is frustrated and has become

impossible of performance cannot be accepted, because, both grounds

based on which appellants had sought withdrawal of public offer, were

in fact settled by appellants on the basis of oral assurance given by

promoters of GTL and further, for the alleged breach of oral assurance,

appellants have filed Suit in the Bombay City Civil Court and obtained

stay of development of Vile-Parle property and that stay is admitted

operating till date.

23. Strong reliance was placed by counsel for appellants on decision

of SEBI dated February 14, 2014 wherein penalty of`1 crore has been

levied against the promoters of GTL interalia for violating regulation 23

of SAST Regulations, 1997. No doubt that entering into an MOU by

GTL with Sheth Developers on November 26, 2009 without obtaining

approval of general body of shareholders was in violation of regulation

23 of SAST Regulations, 1997. However, admittedly on January 18,

2010 the general body of shareholders has authorized GTL to enter intoBrought to you by http://StockViz.biz


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Joint Development Agreement is in respect of Vile-Parle property. In

view of approval granted by the general body of shareholders on January

18, 2010, grievance of appellants that Vile-Parle property has been

encumbered in violation of regulation 23 does not survive at least from

January 18, 2010.

24. Fact that the date on which MOU was entered into, there was

violation of regulation 23 for want of approval of the general body of

shareholders of GTL does not entitle the appellants to back out of open

offer, because, firstly, even after the MOU dated November 26, 2009

appellants were insisting on pursuing with the public offer by repeatedly

asking SEBI to offer its comments on the draft of the letter of offer.

Secondly, by filing Company Petition No. 3 of 2010 appellants sought to

restrain GTL in seeking approval for development of the Vile-Parle

property from the general body of shareholders in the EGM scheduled to

be held on January 18, 2010. Admittedly, in the EGM held on January

18, 2010 shareholders of GTL approved joint development of the Vile-

Parle property thereby rectifying the deficiency in compliance of

regulation 23 of SAST Regulations, 1997 with effect from January 18,

2010. Thirdly, after settling Company Petition No. 3 of 2010 for

undisclosed reasons and after unconditionally withdrawing the said

Company Petition No. 3 of 2010, appellants have filed Suit and secured

their interest in Vile-Parle property by obtaining stay of development.

Therefore, appellants are not justified in contending that since penalty

has been imposed upon the promoters of GTL for violating regulation 23



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of SAST Regulations, 1997, appellants must be permitted to withdraw

from the public offer.

25. Penalty had to be imposed on the promoters of GTL, because,

entering into MOU without the approval of general body of shareholders

constituted violation of regulation 23 of SAST Regulations, 1997. Fact

that the said lacunae was removed on January 18, 2010 on account of

the approval granted by the general body of shareholders did not absolve

liability of promoters to pay penalty for entering into MOU without the

approval of general body of shareholders. Therefore, fact that penalty

has been imposed upon promoters of GTL for violating regulation 23

cannot be a ground for appellants to withdraw from public offer,

especially when appellants had filed Company Petition No. 3 of 2010 to

challenge MOU and after the shareholders granted approval for joint

development of the Vile-Parle property, appellants amicably settled the

dispute and withdrew Company Petition No. 3 of 2010 for undisclosed

reasons. Thereafter, appellants have filed Suit in the City Civil Court at

Mumbai and obtained stay thereby restraining GTL from developing the

Vile-Parle property. Admittedly, that stay is operating till date. In these

circumstances, appellants having taken steps to safeguard their interest

in Vile-Parle property which according to them is worth` 2000 crores,

are not justified in seeking to withdraw from public offer on ground that

penalty has been imposed upon promoters of GTL or on ground that

GTL has become a defunct company. Very fact that appellants after

securing their interest in Vile-Parle property want to continue with the

litigation relating to Vile-Parle property which is worth ` 2000 croresBrought to you by http://StockViz.biz


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and at the same time want to withdraw from public offer, clearly shows

that the entire exercise of public offer was undertaken solely with a view

to develop the Vile-Parle property.

26. Apart from above, as late as on August 9, 2011 appellants had

addressed a letter to SEBI requesting them to keep the process of open

offer in abeyance, because, in the proceedings pending before the City

Civil Court at Mumbai, GTL had filed an affidavit stating that in the

board resolution dated May 25, 2011 company has decided not to

proceed further with the MOU dated November 26, 2009 (wrongly

stated therein as December 26, 2009) entered with Sheth Developers and

instead take necessary steps to develop the Vile-Parle property by the

company of its own. By the said letter dated August 9, 2011 appellants

called upon SEBI to investigate about the exact legal status of the Vile-

Parle property, investigate regarding possession of the original title

deeds of Vile-Parle property and investigate regarding possession of the

original title deeds of Vile-Parle property, investigate regarding usage of

funds etc. It was further stated in the said letter until appellants are

assured of their concern on the above issues, SEBI should keep the

process of open offer in abeyance.

27. Aforesaid letter dated August 9, 2011, clearly falsifies the case of

appellants that the actions taken by promoters of GTL during the course

of two years has frustrated the public offer, because, if public offer was

frustrated, appellants would not have asked SEBI to keep the process of

public offer in abeyance. Having asked SEBI on August 9, 2011 to keepBrought to you by http://StockViz.biz


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Per: A.S. Lamba (Minority View)

1. The present appeal has been filed by Pramod Jain and others

(hereinafter referred to as Appellants) vs. Securities and Exchange Board of

India (hereinafter referred to as Respondent) against Order No.

WTM/RKA/CFD-DCR/12/2012 dated April 13, 2012 under section 15T of

Securities and Exchange Board of India Act, 1992 challenging order dated

April 13, 2012 passed by Respondent, rejecting application of Appellants

seeking permission to withdraw voluntary public offer, envisaged in Public

Announcement dated November 12, 2009, for acquisition of 25% shares of

Golden Tobacco Limited (hereinafter referred to as Target Company).

2. Target Company was considering re-development of its property

situated in Vile Parle in 2008-09 and invited bids from prospective developers

and Appellant No. 1, made offer for joint development of Vile Parle property,

which was not accepted since another developer, namely, Sheth Developers

Pvt. Ltd. was shortlisted, by Ernst and Young, - the consultant- as best bidder

on September 8, 2009.

3. On November 12, 2009, Appellants made public announcement of

voluntary open offer for acquisition of 25% shares of Target Company at

Rs. 101/- per equity share, when net worth of Target Company was Rs. 42.44

crore, net current assets at Rs. 134.4 crore and gross sales at Rs. 173.67 crore,

as on March 31, 2009. Objective of acquisition, as stated in Public

Announcement , was to obtain substantial stake / voting rights in Target

Company and was in the nature of strategic investment for diversification and

growth, and if successful, would have resulted in ouster of present promoters

from control and management of Target Company.



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(b) issue [or allot] any authorised but unissued securities

carrying voting rights during the offer period; or

(c)enter into any material contracts.

7. It is seen that since after Public Announcement of takeover of Target

Company by Appellants, Promoters of Target Company, initiated a series of

measures, allegedly in violation of Regulations 23 of Takeover Regulations,

about starting alienating, disposing off and/or encumbering assets of Target

Company after Public Offer and without approval of shareholders in EGM.

Instances of these alleged violations were brought to the notice of Respondent

by Appellants from time to time, with request to investigate these violations.

Appellants filed the following complaints, alongwith many other complaints,

with Respondent, between November 26, 2009 to September 1, 2011:

Sr.No.

Date of complaint /correspondence

Content

1. 26.11.2009 Non- disclosure of correct pledge of

shares by GTC and GHCL.

2. E-mail dated

23.12.2009 and letter

dated 24.12.2009

Default by promoters of GTC to

Indiabulls and initiation of arbitration

proceedings and GTCs attempt to sell off

unencumbered property at Vile Parle to

discharge personal liabilities of Promoters.

3. E-mail dated

31.12.2009

Siphoning of fund by management of

GTC. EGM convened by company iscover up for transaction already

concluded.

4. 16.10.2010 Indiabulls FIR against promoters of GTC,

where it is alleged that promoters plan to

sell GTC property at Vile Parle.

5. E-mail dated 18.1.2010 Allegation that proxy forms, authority

letters of shareholders opposing the

motion were destroyed publically.

6. 22.02.2011 Intimation by Appellants that failure on

part of SEBI to initiate action againstPromoters of Target Company, may force

Appellants to withdraw public offer.

7. 09.08.2011 Intimation of Board Resolution dated

25.05.2011 regarding cancellation of

MOU of GTC with Sheth Developers.

8. 01.09.2011 Reiterating request to SEBI to review

Appellants complains, during the last 21

months.Brought to you by http://StockViz.biz


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8. During the period intervening between date of public offer i.e.

November 12, 2009 and rejection of request of Appellants to withdraw public

offer on April 13, 2012 by Respondent; following complaints were received

by Respondent against public offer and Appellants:

Sr.

No.

Date and

ComplainantContents

Response from

Appellants

Remarks, as per

Appellants

1. 08.01.2010

Indian

Council of

Investors

Poor Corporate

Governance

Practices by

GHCL and

violative of

PFUTP

Regulations by

Appellants.

Appellant No. 1

was Additional

Director of GHCL

for some time and

did not attend any

meeting of BOD.

Some

apprehensions

of complainant

were not

relevant to

offer and others

were already

disclosed.

2. 05.02.2010

Shobhana S.

Mehta

Non-disclosure of

details of PAC

and suppressionof real intention

and objectives of

Appellants.

None-disclosure

of 20 entities as

PAC.

PAC an Open

Offer was as per

TakeoverRegulations. Fact

of debarment of

Appellant No. 1

had been informed

to SEBI on

11.01.2010.

Requirement of

Escrow Account

complied as per

SASTRegulations.

All disclosure

as required

were made inDLOF.

3. July 6, 2010

Arun Goenka

Education

Qualification of

Appellant,

shareholding of

Pranidhi why

JPFSIL, acting as

PAC object

clause of Pranidhi

and JPFSPL andif diversification

has consent of

RBI.

Replies to these

queries sent to

SEBI and no query

reveals doubt as to

eligibility of

Appellant for open

offer.

Queries were

baseless and

irrelevant.

SEBI should

have examined

relevancy of

queries to arose

under

consideration.



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9. Other relevant events in the matter under Appeal:-

(i) In January 2010, Appellants filed Petition before Company Law

Board (CLB), under Section 397 and 398 of Companies Act,

1956, alleging oppression and mismanagement of Target

Company by, its promoters. Honble CLB passed order on

recording that resolution of GTC Board dated January 18, 2010

was already implemented and third party rights had been created

and hence restrained Target Company from further acting on

implementation of its resolution dated January 18, 2010,

empowering Target Company to develop Vile Parle, Marol,Hyderabd and Guntur properties. Later, on February 8, 2010,

Appellants withdrew petition before Honble CLB, due to oral

assurance of promoters of Target Company that sale of

properties of the company would be only by way of public

auction;

(ii) In April, 2011, Appellants apprehended that Promoters of

Target Company intended to breach the assurance, before

settling case before CLB, and hence filed S.C. Suit before

Honble City Civil Court, praying that Target Company be

restrained from disposing and / or creating third party interest,

pursuant to resolution dated January 18, 2010; and City Civil

Court granted ad-interim relief to Appellants, which is still in

force;

(iii) Appellants filed for withdrawal of open offer before

Respondent, in terms of Regulation 27(d) which reads No

public offer, once made, shall be withdrawn except under the

following circumstances, such circumstances as an opinion of

the Board merits withdrawal, primarily since Promoters /

Management were successful in fraudulent activities and

frustrated the open offer by over an extensive period of two

years, inter-alia, disposing off, alienating and / or encumbering

the properties and siphoning off funds of Target Company,

reducing net worth of Target Company at 3.36 crore, book value

of share reduced to () Rs. 1.91 as on March 31, 2011; in

flagrant violation of regulation 23(1)(a) of TakeoverBrought to you by http://StockViz.biz


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Regulations, while Respondent took no notice / action of

repeated complaints of Appellant, describing the violations and

urgency Respondent to investigate and take action in terms of

Takeover Regulations and since Target Company has got

reduced to a Shell Company i.e. a company with practically no

assets but with huge liabilities. This application of Appellants

for withdrawal of public offer was rejected by Respondent vide

order dated April 13, 2012.

(iv) Subsequent to Respondents impugned order dated April 13,

2012; Respondent vide its order dated July 31, 2013, levied

consolidated penalty of Rs. 1 crore 0.4 crore for violation of

clause 35 of listing agreement and Rs. 0.6 crore for violation of

PFUTP Regulations on Target Company; due to failure of

Target Company to provide details of shares pledged or

encumbered by Promoters of Target Company and playing fraud

on investors by concealing information relating to pledge /

encumbrances of shares.

(v) Vide e-mail dated January 19, 2010 Respondent (Neelam

Bhardwaj, General Manager, SEBI) informed Appellants, with

reference to Appellants complaint on EGM proceedings of

Target Company that there is no scope for SEBI to interfere at

this stage, as under Takeover Regulations, there is no

prohibition on Target Company from disposing any of its assets,

if decision to dispose of assets is done with approval of general

body of shareholders;

(vi) Respondent were informed by Appellants, vide their letter

dated December 24, 2009, to the effect that Target Company are

clandestinely making serious attempts to sell or dispose of the

public belonging to the Target Company, etc. clearly bringing

out that sale or disposal is being done clandestinely and not

through open process or with consent of shareholders, obtained

in EGM.

(vii) Respondent passed order on February 14, 2014, against

promoters of Target Company, for violation of regulation 23(1)Brought to you by http://StockViz.biz


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of Takeover Regulations, prejudicing interests of Appellants and

shareholders of Target Company and frustrating open offer

dated November 12, 2009 of Appellants, Promoters of Target

Company were subjected to a penalty of Rs. 1 crore, jointly and

severally, for these violations;

10. Submissions of Appellants:-

(i) Open offer has become impossible of performance as it has been

frustrated by frustrating actions undertaken by Promoters

/Shareholders of Target Company by selling / creating

encumbrances on valuable assets of Target Company and SEBI

did not take any action to prevent promoters from such action,

though the same was brought to notice of SEBI, promptly and

repeatedly. SEBI took action against promoters of Target

Company, for violations of Takeover Regulations, after the

Target Company was drained of all resources and was reduced

to a sick company and during the period of over two years, afterAppellants made public offer to rejection of their application to

withdraw public offer, SEBI did not entertain any request of

Appellant to take action against promoters for prevention of

violation of Takeover Regulations;

(ii) Circumstances, frustrating action of Promoters of Target

Company, refusal of SEBI to act and take action against

promoters as per Takeover Regulations, reduction of a good

company to a sick company due to actions of promoters, in

violation of Takeover Regulations; render request of

Application to withdraw open offer, fit and proper under

regulation 27(d) of Takeover Regulations; since open offer

stands frustrated on account of frustrating actions of Promoters /

shareholders and open offer can be carried out and has been

rendered, impossible to perform.

11. Submissions of Respondent:-

Delay on part of SEBI in approving Draft Letter of Offer was due to

SEBI looking into complaints made by Appellants and others, seeking

information and obtaining the same, entering into considerableBrought to you by http://StockViz.biz


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correspondence and taking appropriate action in matter and considering

magnitude of the increase and nature of issues involved- time taken by SEBI

cannot be considering such as would vitiate the process of or justify

withdrawal of public offer. The following has also been stated by Respondent:

(a) Appellants initiated the process of public offer with full

knowledge of relevant facts and circumstances;

(b) Appellants initiated legal proceedings and challenge the actions

of promoters in the form of Company Petition before Company

Law Board and a Suit before Honble City Civil Court;

(c) Appellants Petition before CLB was withdrawn on basis of

mutual amicable settlement between parties and that they had no

claim against each other. In the civil suit, which is still pending,

Appellants seek to restrain Target Company and its promoters

from relating third party interest / disposal of property of the

Target Company;

(d) SEBI has not made any blanket statement that it has no

authority in jurisdiction to look into wrongdoing by the Target

Company;

(e) SEBI order dated December 31, 2012 and July 31, 2013 relate

to failure to make disclosures and provide correct information

as per clause 35 of Listing Agreement, respectively and have no

relevance to issues of present appeal;

(f) With reference to other submissions of Respondent, the less said

the better, since these have been put up to meet a mere formality

and have no cohesion with and no relevance of these being

brought out with issues in appeal and merely denies everything

contended by Appellants with no material facts or basis. On the

other hand, Ld. Senior Counsel for Respondent argued the

matter in a meaningful manner; based on reason, logic and facts

of the case; and will be brought out when the submissions of

Appellants are examined.



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12. Issues that come up for discussion and for taking a view in the Appeal

are:-

(i)

Relevance of Regulation 15(1), 15(2)(i) & 15(2)(iii); requiring

public announcement of acquisition of shares in national dailies

and its submission to SEBI; regulation 18(1), 18(2) and proviso

and further proviso under this; requiring filing of Draft Letter of

Offer with SEBI within 15 days of Public Announcement and

SEBI specifying changes in this Draft Letter of Offer, if any,

within 21 days and dispatch of this letter to shareholders, as

soon as period available to SEBI to specify changes, expires.

Further, as per Regulation 19(1), a specific date is to be

mentioned in Public Announcement for determining names of

shareholders to whom the Draft Letter of Offer should be sent;

regulation 22(1) requires the acquirer to be able to implement

the offer; regulation 22(2) require acquirer to send a copy of

draft letter within 14 days to Target Company, for being placed

before Board of Directors and regulation 22(3) require to send

Letter of Offer to all shareholders, including non-resident

Indians, within 45 days from date of Public Announcement and

regulation 22(5) require offer to acquire shares to shareholders

to remain open for 20 days. Price, minimum number of shares to

be acquired etc. are available in regulation 20 and 21

respectively;

(ii) Now only change in above mentioned regulations for

rescheduling date of opening or closing of offer only is

available, in regulation 18(2) further provision of Takeover

Regulations to SEBI, which are in eventuality of inadequate

disclosures in draft letter of offer or if SEBI has received any

complaint or has initiated any inquiry or investigation in respect

of public offer.

(iii) In view of what has been mentioned above regarding scheduling

of events of public offer and what is contained about these in

Takeover Regulations; no one, including SEBI, has any leeway

to delay, play or take liberty with duties and timelines cast on allBrought to you by http://StockViz.biz


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players, namely Acquirer including its Merchant Banker -

Promoters of Target Company, SEBI and shareholders; except

as envisaged under further proviso to regulation 18(2) of

Takeover Regulations and that too for rescheduling the date of

opening or closing of the offer, if disclosures in Draft of Public

Offer are inadequate and some complaint has been received or

SEBI has initiated any enquiry or investigation. The

rescheduling allow SEBI, in case revised Letter of Offer has

been called for, a period of seven working days to offer

comments from filing of such revised offer, is available.

(iv) The purpose of stating above is to make it clear to every player

in matter of dealing with open offer; is that legislature, while

making these regulations, made it clear that every player has to

play its part with due solemnness, promptness, efficiency and

dedication, so that public offers go through within timelines and

nobody acts callously and without meeting timelines. It may

also be mentioned that legislature / regulations for Takeover

have been set-up in such a manner that everyone concerned has

to do everything expected of him, within timelines, so that open

offer goes through its course, set out in regulations. This

understanding of adhering to timelines is most important, if

public offers have to succeed.

(v)

In content of legislative framework, the role of SEBI in present

appeal needs to be considered. At the cost of repetition, it may

be, mentioned that date of Public Announcement by Appellants

for purchase of 25% of paid up capital of Target Company was

November 12, 2009 and Draft Letter of Offer was filed with

SEBI on November 26, 2009. SEBI issues a letter to Merchant

Banker (MB) on December 7, 2009 asking to provide

clarifications on background of acquirer, persons acting in

concert, procedure for acceptance of settlement and documents

for inspection. These clarifications were furnished on December

23, 2009. Meanwhile, period of 21 days for approval of Letter

of Offer, as per first proviso to regulation 18(2), expired on

December 17, 2009 and December 24, 2009 was the date byBrought to you by http://StockViz.biz


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which Letter of Offer was to be dispatched to shareholders, also

expired. Since reply of MB dated December 23, 2009, in

response to Respondents letter dated December 7, 2009, was

after expiry of 21 days period (upto December 17, 2009)

available to Respondent to indicate changes, Respondent should

have been vigilant, after getting reply from MB, and issued

letter to Appellant (or their MB) requiring specific changes to be

incorporated in Draft of Open Offer, at the earliest, along with

direction to change other dates for carrying out essentials of

public offer;

(vi) First complaint regarding public offer from Indian Council of

Investors received by SEBI is dated January 8, 2010 and

forwarded to MB on January 19, 2010 to MB. Date of receipt of

this complaint in SEBI is not clear, since it has not been

stamped in SEBIs office. Thus, SEBI had clear 15 days to

specify changes in Draft Letter of Offer, since reply from MB

on clarifications sought by SEBI had been received by SEBI on

December 23, 2009. In other words, SEBI choose not to act

within further period of 15 days, after exhausting 21 days initial

period available to it to specify changes in Draft Letter of Offer;

(vii) On receipt of complaint dated January 8, 2010, the complaint

was forwarded to MB by Respondent on January 19, 2010.

Main allegations and MBs response have been brought out in

paras above. Main point to be noted in the instant case is that

Respondent have been following a practice of forwarding the

complaints received by it in cases of IPO, Public Offer, etc.

which are of time sensitive nature to MB for taking necessary

action. In effect this has been interpreted by MBs, dealing with

these matters, to verify veracity of the complaint and take

necessary action in incorporating it suitably in offer document;

(viii) This was seen by this Tribunal while dealing with Appeal No.

84 of 2012 dated 19.02.2014 between Keynote Corporate

Services Ltd. vs. Securities and Exchange Board of India that,

as per SEBI (Disclosure and Investor Protection) Guidelines,Brought to you by http://StockViz.biz


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2000, Chapter V, Pre-Issue obligations that 5.1.1 The

standard of due diligence shall be such that MB shall satisfy

himself about all aspects of offering, veracity and adequacy of

disclosures in the offer documents, and it was MB, who was

held violative of this clause 5.1, when it was seen that some

Inter-Corporate Deposits availed of by Edserv Softsystems

Ltd., were not disclosed in offer document; which shows that it

is the responsibility of MB to ensure veracity and adequacy of

disclosures. Keeping in view the above, Respondent have, as a

matter of practice, forwarded complaints against IPO, Public

Offers, etc. to MB for taking necessary action i.e. to verify the

contents of complaint and to take action for incorporating these

in offer document, so that requirement of veracity and

adequacy of disclosures, in offer document, is met.

(ix) In the matter of Imperial Corporate Finance and Services Pvt.

Ltd. vs. SEBI in Appeal No. 56 of 2003 dated 30.07.2007, it

was held by this Tribunal that we do not find any justification

for holding the Appellant guilty of violating any regulation on

provisions of the Act, and this was in context of Appellant,

were Lead Manager to rights issue of Gammon (India) Ltd., and

it was alleged that Appellant did not take immediate action,

when it received information of a Director of Gammon (India)

Ltd. to have a case pending against it, when it was not

mentioned in issue document and that the same was sent to

Director concerned for an explanation by Appellant. However,

complainant sent another letter to Appellant stating that Director

had a criminal case pending against it and Director admitted to

have the criminal case pending against him;

(x) The purpose of above referred case is to show the practice

prevalent in Respondent to send complaints in connection with

IPO, open offers to MB, so that veracity of same can be verified

and suitable action taken in offer document, as a measure of

due-diligence carried out by MB;



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(xi) In oral argument before this Tribunal in case of Suresh N. Vijay

vs. SEBI and Another it was stated before Tribunal on July 16,

2014 by Ld. Counsel Shri Kumar Desai of Respondent that it is

the practice in Respondent (SEBI) to send all complaints to MB

for necessary action in the matter. This should also be the case,

since IPO and Public Offers are time sensitive matters, where

adherence to timelines is essential, since otherwise no IPO as

Public Offer will succeed;

(xii) At this point, it may be mentioned that a specific query was put

to Ld. Senior Counsel for Respondent, as to why no action was

taken by SEBI, after receipt of clarifications on December 23,

2009 and before receipt of first complaint (dated January 8,

2010) by SEBI, i.e. after expiry of 21 days time available to

SEBI to specify changes in Draft Letter of Offer, when at least

another 15 days were available to Respondent before first

complaint was received. Ld. Senior Counsel could not respond

to this. Further, Ld. Senior Counsel was asked as to why it is

seen in all cases of Public Offer, coming before Tribunal, that

SEBI takes an inordinate amount of time, much beyond 21 days

available to it, to specify changes. Ld. Senior Counsel stated

that in majority of cases, Respondent does specify change in

Draft of Offer within time specified. However, it has to be

pointed out that as per page 266 of MOA, in year 2009, time

taken to approve 66 cases of open offer, ranged from 31 days in

case of Joy Reality Ltd. to 553 days in case of Zenotech

Laboratories, followed by 503 days for Orissa Sponge Iron &

Steel Ltd. and in none of cases, period of 21 days had been

adhered to;

(xiii) From perusal of three complaints namely from Indian Council

of Investors, Shobhana S. Mehta and Arun Goenka, it appears

that no action was taken by Respondent to verify genuinity of

complaint by asking the complainant, if he / she had sent the

complaint, which is generally the case of an entity, which deals

with complaints, which have bearing on future of subject matter.

Also, in case of Indian Council of Investors, it was, perhaps, notBrought to you by http://StockViz.biz


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proper to deal with the complaint if this council is not registered

with Respondent.

(xiv)

From perusal of complaints, it is seen that main issues broughtout in complaints are:-

Poor Corporate Governance

Violation of PFUTP Regulations

Non Disclosure of details of PAC

Suppression of real intentions and objectives

If object clause of Appellants allow diversification

13. In the opinion of undersigned, no grave or serious issues have been

brought out in the complaints and could have been dealt by following normal

practice of Respondent of referring the complaints to MB for necessary action

i.e. of verifying the veracity of complaint and taking action of making

necessary changes in DLO, if required. As already stated, if Respondent had

stuck to timelines there was no occasion to deal with the complaints, but from

delay of Respondent in not taking action for adhering to timelines and leaving

sufficient time to complaints to send on their complaints and then to make

departure from accepted practice of dealing with complaint of sending them

to MB - but to take action on complaints themselves when contents of

complaints were not grave or serious; raises serious questions, which

Respondent have not answered.

14. It may also be stated that complaints appear sufficiently educated and

enlightened and that they should also know that Public Offer is an offer only,

with no compulsion whatsoever, to sell their holdings to Appellants. In case

the complainants were not happy with genuineness of Appellants, their ability

to manage the Target Company efficiently without possessing necessary

qualifications; the shareholders have every right not to sell their holdings to



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of conduct of promoters of Target Company. From what has been stated

briefly above, will be elaborated in subsequent paras to show that Appellants

were aware of Target Companys promoters antecedents but what they could

not factor in was conduct of Respondent and how they will deal with entire

matter; including complaints of investors, unending enquiry on these

complaints, and how Respondent will deal with complaints of Appellants

about conduct of promoters of Target Company and allegation of violation of

Regulation 23(1) of Takeover Regulations by promoters of Target Company.

In other words, it appears to undersigned that all concerned, as per

submissions of Ld. Senior Counsel for Respondent, should take recourse to

hostile public offers for taking over company, whose promoters are known for

bad management and attendant other actions; at their own peril and should not

expect any sensitivity / appreciation / assistance from Respondent in

upholding, what is due to bidders of hostile open offers, from Respondents,

when Takeover Regulations and in particular most important regulation 23(1)

is breached.

18. The various complaints lodged by Appellant, brought to knowledge of

Respondent that promoters of Target Company have breached regulation

23(1) of Takeover Regulations, with request to Respondent to take action for

prevention of breach, but strangely Respondent did not take any action and no

enquiry was conducted.

19. Complaints from Appellants to Respondent have been narrated above

and there were lodged after each and every move by promoters of Target

Company leading to violation of Takeover Regulations but Respondent

steadfastly maintained that promoters of Target Company can sell, transfer

encumber or dispose of assets during offer period, provided approval ofBrought to you by http://StockViz.biz


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General Body of shareholders is obtained, as per regulation 23(1) of Takeover

Regulations despite complaint being of promoters of Target Company,

encumbering properties of Target Company, in violation of regulation 23(1)

of Takeover Regulations, without taking approval of shareholders in EGM.

20. On the other hand, it is seen that Respondent was taking action on

every complaint received against the Appellants, looking into all aspect of

complaint most efficiently, by sending reminders at intervals, without going

into the fact that these complaints were not verified, were repetitive and most

importantly whether subject matter of complaint was germane to main issue

and whether it has been the practice of Respondent to send complaints

regarding IPO / Public Offer, to MB for verification and taking action within

timeframe work available for various activities available for IPO / Public

Offer or whether questions raised had been addressed substantially in

response to earlier complaints or answer to complaint was available in Draft

Letter of Offer or in subsequent clarifications.

21. In above content, complaint received from Ms. Shobhana S. Mehta and

action taken by Respondent needs to be gone into greater details, since it has

been dealt by Respondent in all its aspects in details. Complaint, in question,

deal with:-

(i) Non-disclosure of persons acting in concert;

(ii) Fraudulent and misleading statements in public announcement

about objective of Takeover;

(iii) Inadequate firm financial arrangements and misleadingstatements thereto;

(iv) Escrow arrangements not in accordance with Regulation 28 of

Takeover Regulations;

(v) Share acquired subsequent to public announcement and no

disclosure made;Brought to you by http://StockViz.biz


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(vi) Deliberate violations of Timelines prescribed under the

Takeover Regulations;

(viii) Track record of Promoter Jain;

22. In content of above complaint, the genuineness of which is in doubt

since same has not been verified by SEBI, if person named as sender had sent

the complaint or not, it must be appreciated that complainant is a very

informed investor with 513 shares of Target Company for 20 years (valued at

about Rs. 51,300 at the time of complaint) and is a very knowledgeable about

promoters of Target Company, Appellants, their PACs and connected

companies and about rules, regulations of various laws governing these

matters; should have also known that DLO or Letter of Offer is voluntary with

no compulsion on shareholders to sell his / her shareholding to offerer.

23. The allegation about PAC not being properly disclosed was taken up

by Respondent with Target Company, Appellants and named PACs in

complaint, in different ways with these three entities, perhaps this was as part

of overall strategy of Respondent, which has not disclosed, and Target

Company is asked to inform whether 20 PACs, named in complaint, have

shareholding in Target Company and furnish their latest shareholding and

their address; letter to Appellants from Respondent is dated March 02, 2010

and is asking for comments of Appellants on all counts, stated in complaint

and letter to 20 PACs named in complaint and requesting them to state their

shareholding in Target Company as on May 12, 2009, as well as changes in

shareholding and provide names of shareholders with holding over 2% in their

own companies (not in Target Company) alongwith names of promoters and

directions in their own company.



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24. It may be stated that why Respondent did not await for response from

Appellants and without waiting for this, letters were sent to all so named

PACs in complaint and complaint also sent to Target Company to state

shareholding of alleged 20 PACs in Target Company. None of these

questions were replied by Ld. Senior Counsel and he was satisfied with

stating that since Respondent had to deal with 20 entities named as PAC in

complaint, with Appellant and Target Company and hence delay of 2 years in

dealing with Draft Letter of Offer whereas only 21 days time as allowed to

Respondent as per Takeover Regulations is not excessive but justified.

25. Now coming back to letters issued by Respondent to alleged 20 PACs,

the response has been received and from sample of these letters available in

compilation of documents, no worthwhile information their being in PAC

with Appellants was sought or has emerged, Target Company has provided

shareholding of 20 alleged PACs in Target Company, after two reminders

and after more than 3 months of first reference of Respondent to Target

Company.

26. Facts emerging from detailed investigation into complaint from

Ms. Mehta, spread over more than one year, does not find any mention in

comments issued to Appellants for incorporation n DLO, which means that

Respondent wasted more than one year of precious time on getting response

of entities on contents of an verified complaint, resulting in issue of 22 letters

to different entities, asking for different information from different entities

and issuing more than 22 reminders to get the information and this fact of

meaningless or non-consequential, complaint, could be seen from facts of

complaint by Respondent since it deals with these matters day-in and day-out,

but Respondent choose to investigate the complaint, in depth, departing fromBrought to you by http://StockViz.biz


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normal practice of referring to it to MB, for taking up investigation itself but

brought no new facts in DLO; has to be answered by Respondent, in more

details than cursorily stating than in view of complaints, the requirement to

suggest changes in DLO got delayed.

27. Now coming to various complaints sent by Appellants to Respondent,

against Target Company, alleging violation of Takeover Regulations by

Promoters of Target Company or its shareholders, and these have been

numerous and varied alongwith documentary evidence of violation

committed; response of Respondent has been discouraging, to say the least,

and downright aggressive and hostile beyond contemplation.

28. Respondent have been saying that Appellant made public offer being

fully aware of background of promoters Target Company, had known their

conduct in dealing with financers that they had entered into various deals with

various entities for developing their properties, but did not keep these

promises and these entities started civil / criminal proceedings against

promoters and that Appellants bid for development of properties had been

refused / not agreed by these promoters. Hence, Appellants knew these facts

and were not innocent acquirers and knew what they were doing.

29. Before we go further, it is an admitted position that when Appellants

made public offer of acquisition of 25% stake in Target Company on

November 12, 2009, the most valuable property of Target Company was

wholly encumbered, in any manner whatsoever and agreement for

development of this property at Vile Parle was entered into by Target

Company with Sheth Developers on December 26, 2009 and was without

approval of general body of shareholders as per regulation 23(1) of Takeover



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Regulations which is required for any sale / encumbrance of property, during

pendency of public offer. This regulation require that Target Company shall

not, during the offer period, sell, transfer, encumber or otherwise dispose of or

enter into an agreement for sale, transfer, encumbrance or for disposal of

assets or otherwise, not being sale or disposal of assets, in the ordinary course

of business, of the company or its subsidiaries.

30. This agreement was sought to be regularized by EGM of Target

Company held on January18, 2010, which was marred by irregularities in

voting at the EGM, as alleged by Appellants. Hence, there have been series of

complaints from Appellants to Respondent, against promoters / shareholders

of Target Company; giving details of irregularities, violations and other

misdeeds. These complaints were, in particular, violative of regulation 23(1)

of Takeover Regulations and Respondent were under obligation to enquire

these complaints and take action against violators. However, Respondent

chose to ignore all these complaints, specifically stating the rule position and

maintaining this stead-fasted for all times to come, that promoters of Target

Company can dispose off, encumber, sell property of Target Company, after

public offer, after obtained approval of shareholders in EGM; whereas

complaint was that promoters had encumbered property without shareholders

approval in EGM.

31. Now, it is not being held that what the Appellants stated was absolute

truth but Respondent were under obligation to investigate and take necessary

action, in the matter, since SEBI, by their over admission of their Counsels /

Senior Counsels, before this Tribunal, take cognizance of all complaints,

information, reports appearing in press etc. i.e. whenever violations of

Respondents regulations, SEBI Act, come to their notice. But in instant case,Brought to you by http://StockViz.biz


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in market, if they thought takeover of Target Company by Appellant, could

not be warded off.

34. In short, Respondent response to Appellants complaint was non-

sensitive by not looking into allegation of violation of Takeover Regulation

by promoters of Target Company, and Respondent did not take-up

investigation or even issued show cause notice to promoters, when solid

evidence of wrong doing by promotes existed; Respondent did not stop at that

but left no opportunity to chide Appellants / MB for raising hue and cry about

violations.

35. In the circumstances, when Ld. Senior Counsel for Respondent

pleading that Appellants made hostile takeover bid knowing fully the past

conduct of promoters of Target Company and were not innocent investors

and should have known consequences of their public offer; is to construed as

meaning that entities who make bids for hostile takeover of other companies

do this at then own pearl and should not expect any assistance from

Respondent, who may not may not pull up violators of Takeover Regulations.

36. Since Respondent did not take any action on the complaints of

Appellants, Appellants approached Company Law Board (CLB) and CLB

restrained Target Company from further acting on implementation of

shareholders resolution of January 18, 2010. Subsequently, Petition of

Appellants before CLB was withdrawn on mutual understanding and coming

to amicable settlement, without any claim against each other on February 15,

2010.

37. The above has been mentioned; in content of pleadings of Ld. Senior

Counsel for Respondent regarding delay in approving Draft Letter of OfferBrought to you by http://StockViz.biz


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due to Appellants approaching CLB and obtaining restrain order and

subsequently settling the matter amicably. The undersigned sees no merit in

this pleadings for delay on their part, since proceedings before CLB, and

Respondent are independent and CLBs restrain on promoters does not

restrain Respondent from acting on Draft Letter of Offer or specifying

changes for incorporation in Draft Letter of Offer.

38. Similarly part of delay has been attributed to Appellant approaching

City Civil Court and obtaining restrain order dated May 19, 2011 for

restraining Target Company in disposing off assets of Target Company

pursuant to resolution dated January 18, 2010. Restrain order from City Civil

Court does not in any way restrain Respondent from acting on DLO and to

delay issue of changes for incorporation in DLO.

39. However, it may be mentioned that after withdrawal of Petition before

CLB on February 8, 2010 promoters of Target Company transferred funds

from its subsidiary company, i.e. Golden Reality and Infrastructure Ltd. to

undisclosed third parties under guise of acquiring development rights for

construction of property.

40. In fact Petition filed before CLB and starting proceedings before City

Civil Court, were taken up to stop / restrain promoters of Target Company

from further encumbering / selling properties of the Target Company, which

were allegedly violative of SEBIs Takeover Regulations also but SEBI

refused to act on complaints of Appellants on the issues or to stop / restrain

promoters from siphoning of funds from Target Company.

41. It may be further mentioned that Takeover Regulations 1997 have

since been revised in 2011 and as per new regulations, period available toBrought to you by http://StockViz.biz


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SEBI for offering its comments on Draft Letter of Offer has been reduced to

15 working days, in place of 21 days available under 1997 regulations and

most importantly it is stated that in event of no comments being issued by

SEBI within such period, it shall be deemed that Board (SEBI) does not have

comments to offer.

42. In other words, legislature having realized that Board (SEBI) takes

inordinate long time, in approval / offering changes / comments on Draft

Letter of Offer, it has been legislated that in absence of comments by Board in

15 working days; approval of Board shall be deemed accorded. This, perhaps,

will allow takeover of companies in hostile bids.

43. It may be stated in impugned order that Appellants had requested

Respondent, vide their letter dated August 2, 2011, to permit Appellants to

withdraw the public offer in terms of regulation 27(1)(d) of Takeover

Regulations and subsequent to this, on August 9, 2011, again raised issue of

alleged violations of Takeover Regulations by Target Company and requested

SEBI to direct Target Company to inform its shareholders about exact status

of its prime assets, value over Rs. 1000 crore, and possession of original title

deeds of these assets and fund usage. Appellant, in view of above, requested

Respondent to keep the process of open offer, in abeyance.

44. In above connection, it may be stated that Appellant is a die-hand

optimist to make any request to Respondent, when all his earlier requests for

enquiry / investigation / restrain to Respondent, have not yielded any positive

response and nothing really turn-on its head with letter of August 9, 2011,

when it had asked for withholding of its open offer. Respondent have tried to

explain that just before August 9, 2011, they were about to issue its



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observations on the DLO, but could not do so since August 2, 2011; letter for

withdrawal of DLO was received from Appellants.

45. However, this does not make any material change in situation since

almost entire damage to Target Company by its Promoters had been done and

nothing remained of original quantities of the company and delay of one year

and 10 months had done all damage that was possible and whether letter

containing Respondents observations were issued in August, 2012 or later is

of no consequence; but if it is Respondents case that time of one year and 10

months is justified, in place of 21 days available to it; it is not a very healthy

state of affairs and Respondent have to do a lot more explanation, based on

logic and reasoning, to explain delay in offering changes in DLO in their

handling of the case.

46. Several case records have been cited, but none of these case fit with

facts of present case, where a genuine offer of hostile takeover has been made

infructuous by actions of promoters of Target Company in selling /

encumbering good properties of Target Company, in violation of Regulation

23(1) of Takeover Code, and completely overlooked by Respondent, whereas

complaints by investors, having no bearing on public offer were investigated,

in no holds barred manner by Respondent, spread over two years, instead of

referring these complaints to MB and for taking into account relevant facts of

complaint in Draft Letter of Offer, and not taking cognizance of Appellants

numerous complaints against promoters, whereas substantial evidence was

adduced of violation of Takeover Regulations by promoters and least chiding

the MB for not being professional; while at the same time allowing the

promoters to violate regulation 23(1) and take away funds from Target

Company to its subsidiaries and further to unknown accounts; and not

approving Draft Letter of Offer within mandated 21 days and further periodBrought to you by http://StockViz.biz


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of 15 clear days, which were available, before any complaint against

Appellant was received and sufficient scrutiny of Draft Letter Offer had been

done and queries on Draft Open Letter had been raised and replied by

Appellant / MB and yet 15 days time was available to approve the Draft Open

Offer, before receipt of any complaint, but it seems that Respondent were

waiting for complaints, so that they could deny prompt approval and involve

everyone concerned in quagmire of complaint, counter complaint, needless

investigation and non investigation of well founded complaint, resulting in

needless / avoidable litigation before CLB and City Civil Court, thus totally

and effectively frustrating the offer at the end of two years of wastage of time,

by which time the company sought to be acquired had been reduced into a

Shell Company.

47. Hence, the undersigned has no hesitation in terming the offer of having

been becoming impossible of performance, since the Appellants will acquire a

dead company, whereas they proposed to acquire a healthy company. The

Target Company is before

In the matter of Mr. Pramod Jain

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Transcript of In the matter of Mr. Pramod Jain